In New York, Brookfield Paves Way for Office Towers

A rendering of two office towers planned for Manhattan’s far West Side.

In the office market, demand has been sluggish in cities around the U.S.

But that’s not stopping developers, who are betting that even if occupancy levels don’t rise, they’ll be able to lure companies from other buildings when their leases expire.

The latest example came Tuesday, when Brookfield Office Properties held a groundbreaking ceremony in Manhattan for a giant platform to be built over rail tracks on its 5-acre site on the far West Side.

The platform is an enormous investment—taken with the cost of buying the land, the total price tag is $680 million—that lays the stage for future development once the platform is completed. The company said it secured a $340 million loan from a group of banks including HSBCWells Fargo and U.S. Bank, a sizeable loan at a time when construction financing is still limited. Once completed, the company plans two office towers totaling 4 million square feet, although Brookfield said it would line up anchor tenants before moving forward.

Others engaging in large projects include a joint venture of Hines and Ivanhoe Cambridge in Chicago, where the two plan a 45-story tower in the city’s West Loop neighborhood. Boston and neighboring Cambridge have a flurry of new office development—much of it lab space aimed at pharmaceutical companies—and San Francisco has two new large office buildings under way.

In New York, Brookfield is competing with the Related Companies’ giant Hudson Yards project, a 26-acre site just one block to the west. Last month, Related held a groundbreaking for its first tower—home to handbag maker Coach. Like Brookfield’s site, any remaining towers require an expensive platform over rail yards, and Related first would need to line up a tenant and financing to move forward on that phase.

All the developers are hoping tenants will choose new space over old. Of course, a slow-growing market makes it harder to attract those tenants, and thus far, many large office users have opted to stay in their current locations when their leases come due, a frustrating point for aspiring builders.

Still, there’s plenty of time until the deck is done—it’s slated for completion in 2014—and Brookfield Chief Executive Dennis Friedrich said at the event that he’s “very encouraged at the level of activity we’re seeing” in early leasing discussions.

Across the U.S., office markets in major cities have been doing better than the rest of the country overall, in part because new startups appear to be more attracted to cities than suburbs than in the past. This applies to tech companies setting up shop in San Francisco as well as to hedge funds that are opting for Manhattan over Greenwich, Conn., as explored in a piece in today’s Wall Street Journal.

Brookfield’s history with the site dates back nearly three decades, when its predecessor company Olympia & York bought the rights to build above the rail tracks west of Ninth Avenue, between 31st and 33rd Streets. (Former Brookfield Chief Executive Ric Clark said he was an analyst assigned to the property at the time).

It took another two decades to buy up the rest of the property on the development site, and just before the financial crisis, the company announced it would move forward with two giant office towers on the site, only to put the plan on hold shortly thereafter.

Now it’s rethought the property some, in a show of the changing market. Brookfield shrunk the size of the office towers and added a third building, set to be apartments, a hot property these days given that rents have been at or near all-time highs in New York.